Initiated By
PENNSYLVANIA CONTACT: STEFANIE Z. HAMILTON AND/OR JOSEPH J. MINISI (215)-560-2088
Allegations
CHARLES W. JOHNSON OFFERED AND SOLD INTERESTS TO PA RESIDENTS FOR AN AGGREGATE AMOUNT OF AT LEAST $418,856.00 IN VIOLATION OF THE REGISTRATION PROVISIONS OF THE PA SECURITIES ACT OF 1972.
Resolution
Settled
Sanctions
Monetary/Fine
Amount
$11,500.00
Sanctions
CHARLES W. JOHNSON IS ORDERED TO COMPLY WITH THE PA SECURITIES ACT OF 1972, IN PARTICULAR, THE REGISTRATION PROVISIONS. SHOULD CHARLES W. JOHNSON FAIL TO COMPLY WITH ANY AND ALL PROVISIONS OF THIS ORDER, THE PA SECURITIES COMMISSION MAY IMPOSE ADDITIONAL SANCTIONS AND COSTS AND SEEK OTHER APPROPRIATE RELIEF SUBJECT TO CHARLES W. JOHNSON'S RIGHT TO A HEARING.
Sanction Details
CHARLES W. JOHNSON IS ORDERED TO PAY A $10,000.00 ADMINISTRATIVE ASSESSMENT WITH A MONTHLY PAYMENT OF $1,111.11 TO BE MADE ON OR BEFORE 9/30/07 AND CONTINUING THROUGH 5/31/08 AND $1,500.00 INVESTIGATIVE AND LEGAL COSTS WITHIN 30 DAYS.
Broker Comment
PENNSYLVANIA SECURITIES COMMISSION COMMENCED A REGULATORY ACTION PRINCIPALLY ALLEGING THAT VIATICAL INTERESTS SOLD TO MY CLIENTS PRIOR TO 1998 WERE "SECURITIES" THAT SHOULD HAVE BEEN REGISTERED PRIOR TO SALE.
HOWEVER, MY COUNSEL WAS FIRMLY OF THE OPINION THAT THE ALLEGATIONS WERE BASELESS. IN OUR ANSWER TO THE ALLEGATIONS, COUNSEL NOTED THAT SEVERAL OF THE UNDERLYING ALLEGATIONS WERE FACTUALLY INACCURATE. COUNSEL ALSO POINTED OUT THAT MY COMPLIANCE DEPARTMENT APPROVED THE SALE OF THE VIATICAL SETTLEMENTS IN ADVANCE.
MOST IMPORTANTLY, COUNSEL NOTED THAT THE GOVERNING FEDERAL LAW COMPLETELY SUPPORTED OUR POSITION. IN SEC V. LIFE PARTNERS, INC 318 U.S. APP. D.C. 302. 87F.3D 536 (D.C. CIR. 1996), THE DC COURT OF APPEALS, HELD ON NEARLY IDENTICAL FACTS THAT VIATICAL INTERESTS WERE NOT SECURITIES BECAUSE THE INVESTOR COULD NOT REASONABLE EXPECT PROFITS "SOLELY FROM THE EFFORTS OF THE PROMOTER OR A THIRD PARTY." (QUOTING SEC V. HOWEY, 328 U.S. 293, 298-99, 66 S. CT 1100, 90 L. ED. 1244 (1946).
FURTHERMORE, COUNSEL POINTED OUT THAT NO PENNSYLVANIA COURT HAD REVIEWED THE ISSUE AND THE COMMISSION HAD MADE NO EFFORT TO ENJOIN VIATICAL SALES BY SEEKING RELIEF BEFORE A PENNSYLVANIA COURT. COUNSEL PRESUMES THAT THE COMMISSION DID NOT WISH TO CHALLENGE THE FEDERAL COURT'S LIFE PARTNERS ANALYSIS IN COURT.
DESPITE THE FOREGOING, MY COUNSEL ADVISED ME TO SETTLE THE ACTION WITHOUT ADMITTING OR DENYING ANY OF THE COMMISSIONS ALLEGATIONS IN ORDER TO SAVE MYSELF THE TIME THAT I WOULD WASTE IN CONTESTING THE ALLEGATIONS. I AGREED TO FOLLOW HIS ADVICE.
THE STATE OF PENNSYLVANIA HAS SINCE REVERSED ITS POSITION ON THE MATTER OF LICENSING VIATICALS.